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The Cabinet’s shortsighted PhDs
Thursday, Apr 15, 2010, Page 8
The Cabinet may claim to be a body of doctoral degree holders, but they are
often incapable of explaining their ever-changing policies. This was true of the
US beef import debacle and it applies both to an economic cooperation framework
agreement (ECFA) with China and to the draft industrial renewal act that the
legislature is about to vote on. On the eve of the vote, the Cabinet suddenly
announced that it would cut the 20 percent business income tax rate in the draft
to 17 percent. That cut will cost the government NT$30 billion (US$956 million)
in lost tax revenue.
The draft industrial renewal act is intended as a replacement for the expired
Act for Upgrading Industries (促進產業升級條例). It extends tax cuts and incentives that
have made Taiwanese industry dependent on government subsidies. By cutting the
business income tax from 20 percent to 17 percent in response to opposition
calls for a 17.5 percent tax rate, the government is using fiscal revenue to
feed industrial profit. By not reforming the regulations in the Act for
Upgrading Industries, which distorted the tax system, the government will erode
fiscal revenues by helping wealthy people earn more and pay less taxes. While
certain to compound social injustice, the effects on industrial renewal are
questionable.
Premier Wu Den-yih (吳敦義) has said the 17 percent tax rate was determined by
looking at Singapore and that the cut is intended to increase Taiwan’s
attractiveness to foreign investors. The difference is that while Singapore
relies on the service industry for its growth, Taiwan’s specialty is
manufacturing. The economic structures of the two countries are different and
offer different advantages, which means that the conditions required for
industrial development differ even more.
If the government wants to encourage industrial renewal to increase
competitiveness by looking at Singapore, it is comparing apples and oranges.
Taiwan needs to learn from Singapore how to improve efficiency and raise overall
competitiveness. The nation needs to take a careful look at its own economic
system and find development strategies appropriate to Taiwan, and the government
and the opposition must stop competing by undercutting each other’s tax
suggestions — that only serves to unload debt onto future generations. The
government must also stop blindly pushing for an ECFA that will only encourage
local industries to move to China.
Minister of Finance Lee Sush-der (李述德) had previously called the current 20
percent business income tax rate the final limit. He even said that “we can’t
cut even 1 percent” off that figure, but after the Cabinet’s decision to cut 3
percent, Lee actually justified the change by saying: “It is only normal that
policy keeps changing.” He then glossed over the loss of tax revenue by saying
that “the economy will grow.”
If the nation’s finances are squandered on lavish policies because the
government wants to save the current financial situation with the help of a
hypothetical future economy, it is simply moving the economic crisis forward in
time. The policy direction keeps changing without any attempt to explain or
defend policy decisions or to take any responsibility for the nation’s future
development.
We have now seen different scenarios play out over two of the Cabinet’s major
policy initiatives: The draft industrial renewal act and the second generation
of the national health insurance system. The behavior of Lee and Department of
Health Minister Yaung Chih-liang (楊志良) differed vastly. Yaung defended his
ideals and policies to the extent that he was willing to resign. Lee, on the
other hand, quickly backed off when he encountered opposition, instead of
defending his policies and showing the courage to face the consequences of his
decisions. Once again, this shortsighted and unprincipled decision-making
process reveals how the government is slowly self-destructing.
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